Turkish lira hits record low as U.S. warns against Russian missile testing

The Turkish lira fell to a record low against the dollar after a U.S. official warned Turkey against testing an air defence system purchased from Russia.

The lira dropped to as low as 7.8787 per dollar. It traded down 1 percent at 7.8696 against the U.S. currency in afternoon trading local time. Losses this year total almost 25 percent.

The United States is deeply concerned about reports that Turkey plans to test the S-400 missiles, a U.S. State Department official said, according to media outlets including Greek newspaper Kathimerini and Russia’s Sputnik.

“We continue to stress at the highest levels that the S-400 transaction remains a major obstacle in the bilateral relationship and at NATO, as well as a risk for potential CAATSA sanctions,” the spokesperson said. “We are confident that President [Recep Tayyip] Erdoğan and his senior officials understand our position.”

Turkey is planning to carry out the testing next week, Bloomberg reported on Tuesday, citing people familiar with the matter.

Turkey took delivery of the S-400s in July last year sparking losses for the lira on speculation among investors that the Trump administration might approve widespread sanctions called for by U.S. legislators. Turkey was later excluded from a programme to produce and acquire advanced F-35 fighter jets. A wider sanctions bill remains on the table.

"In some ways, testing the S-400s is a useful reminder to investors that Turkey's geopolitical and military relationship with NATO isn't about to reset any time soon," said Erik Meyersson, senior economist at Handelsbanken. "There have been way too many optimistic takes on these missiles over the years. They're not going away."

Turkey has begun transporting the S-400s to a training ground in the north of the country, the Ihlas news agency reported on Tuesday. Video footage published on social media showed alleged S-400 transport vehicles speeding through a built-up area. The government has not commented on the deployment of the systems and any plans for testing.

Turkey has issued an advisory known as “NOTAM”, which includes airspace restrictions, for testing that will be done in Sinop on the Black Sea coast, Turkish journalist Levent Kemal reported on Tuesday.

Turkey acquired the S-400s after signing a $2.5 billion contract with Moscow in 2017. It has yet to activate the system.

The United States and other Western allies say the Russian-built hardware could lead to subterfuge against advanced NATO weaponry including the F-35.

Turkey’s military forays into Syria to fight Kurds allied with the United States in the fight against Islamic State (ISIS) and a recent military standoff with neighbour Greece over territorial rights in the eastern Mediterranean have intensified concerns that President Recep Tayyip Erdoğan’s government is straying from Turkey’s traditional Western orbit.